Traders' A.I.

The apparently stalled S&P 500 Index that was confied to a directionless channel of about 40 points wide for more than two weeks has finally broken below that channel, confirming a weak bull.

Model Biases/Outlook:

Having broken below the strong support band of 2710-2700 and probing even below our often-repeated, key 2680 support level, today’s market action is interpreted by our aggressive, short-term models as confirming that the last few weeks of bullish bias is now negated and that the market has fallen out of the bulls’ territory.  

However, the market has NOT entered the bears’ territory, yet. As mentioned in our intraday alert last week on 5/22, “2680 has to be broken for the models to turn bearish”. That forecast published seven days back still holds true for the medium term models. 

Today’s action – while significant in negating the bullish bias and bringing the index out of the bulls’ territory – is still within the “stay flat” range of our medium term models.

Medium term models are currently flat, with no positions being held.  Models indicate no short bias until below 2675. The models indicate selling short only on a daily close below 2680  or intraday breach of 2675 (today’s low registered within two points from this level at 2676.81).  Fresh buying only on a breakout above 2715. Stay flat between these levels. 

Those who followed our aggressive, short term models would have had another decently profitable day today, since the outlook published last night indicated short term models selling short on the break below 2710 (“sell short below 2710 with tight stops”). As indicated in our intraday alert this morning, our models sold short and covered their profits early on, being cautious. Those who are still holding short might want to make sure they have stops to protect their positions from sudden spikes up.

Short term models indicate a cautiously bearish bias. Aggressive traders can consider selling short below 2683 with tight stops (as small as 5 to 10 points). No buying indicated until above 2705, that too with tight stops. Stay flat between 2683 and 2705.